Statement of Marybeth Peters
The Register of Copyrights
before the
Subcommittee on Intellectual
Property,
Committee on the Judiciary

United States Senate
109th Congress, 1st Session

July 12, 2005

Music Licensing Reform

Senator Hatch, Senator Leahy, and distinguished members of the
Subcommittee, I appreciate the opportunity to appear before you
to testify on the need to reform section 115 of the Copyright Act
and possible ways to accomplish it. Section 115 governs the compulsory
licensing of the reproduction and distribution rights for nondramatic
musical works by means of physical phonorecords and digital phonorecord
deliveries. This compulsory license has been in effect for 96 years.
However, the means to provide music to the public have changed
radically in the last decade, necessitating changes in the law
to protect the rights of copyright owners while at the same time
meeting the needs of the users in a digital world. The present
language of section 115 is outdated, particularly as applied to
the online environment. Reform is necessary not only to promote
the availability of a wide variety of music to the listening public,
but also to assist in the music industry's continuing fight against
piracy.

This written statement contains three parts. The first chronicles
the evolution of the compulsory mechanical license. The second
discusses why a need for reform exists, and the final section sets
forth some of the suggestions the Copyright Office and interested
parties have proposed to accomplish the reform.

Evolution of the Compulsory Mechanical License

1. Mechanical Licensing under the 1909 Copyright Act

Starting in 1905, copyright owners began seeking
legislative changes which would grant them the exclusive right
to authorize the mechanical reproduction of their works. The impetus
for this movement was the emergence of the player piano and the
ambiguity surrounding the extent of copyright owners' right to
control the making of copies of their works on piano rolls. Then,
in 1908, the Supreme Court held in White-Smith
Publishing Co. v.
Apollo Co. (1) that
perforated piano rolls were not “copies” under the copyright
statute in force at that time, but rather parts of devices which
performed the work. This decision spurred Congress to take action
and, in 1909, Congress granted copyright owners' wish in part by
adding to the Copyright Act the right, but not an exclusive right,
for copyright owners to make and distribute, or authorize others
to make and distribute, mechanical reproductions (known today as
phonorecords) of their nondramatic musical works. (2)

However, due to concerns about potential monopolistic
behavior, Congress also created a compulsory license to allow anyone
to make and distribute a mechanical reproduction of a nondramatic
musical work without the consent of the copyright owner provided
that the person adhered to the provisions of the license, most
notably paying a statutorily established royalty to the copyright
owner. Section 1(e) of the 1909 Act allowed any person to make
“similar use” of
the nondramatic musical work upon payment of a royalty of two cents
for “each such part manufactured.” However, no one could
take advantage of the compulsory license until the copyright owner
had authorized the first mechanical reproduction of the work. Moreover,
the original license placed notice requirements on both the copyright
owners and the licensees. Section 101(e). The copyright owner had
to file a notice of use with the Copyright Office - indicating
that the musical work had been mechanically reproduced - in order
to preserve his rights under the law, whereas the person who wished
to use the license had to serve the copyright owner with a notice
of intention to use the license and file a copy of that notice
with the Copyright Office. The license had the effect of capping
the amount of money a composer could receive for the mechanical
reproduction of his work. The two cent rate set in 1909 remained
in effect until January 1, 1978, and acted as a ceiling for the
rate in privately negotiated licenses.

Such stringent requirements for use of the compulsory
license did not foster wide use of the license. It is my understanding
that the “mechanical” license as structured under the
1909 Copyright Act was infrequently used until the era of tape
piracy in the late 1960s. During this period, the “pirates” inundated the Copyright Office with notices of intention to utilize
the compulsory license, many of which contained hundreds of song
titles. The music publishers refused to accept such notices and
any proffered royalty payments since they did not believe that
reproduction and duplication of an existing sound recording fell
within the scope of the compulsory license. After this flood of
filings passed, the use of the license appears to have again became
almost non-existent; up to this day, the Copyright Office receives
very few notices of intention.

2. The Mechanical License under the 1976 Copyright Act

The music industry adapted to the compulsory license
in the intervening years and, by and large, sought its retention,
opposing the position of the Register of Copyrights in 1961 to
sunset the license one year after enactment of the omnibus revision
of the copyright law. Music publishers and composers had grown
accustomed to the license and were concerned that the elimination
of the license would cause unnecessary disruptions in the music
industry. Consequently, the argument shifted over time away from
the question of whether to retain the license and, instead, the
debate focused on reducing the burdens on copyright owners, clarifying
ambiguous provisions and setting an appropriate rate. The House
Judiciary Committee's approach reflected this trend and in its
1976 report on the bill revising the Copyright Act, it reiterated
its earlier position “that a compulsory licensing system
is still warranted as a condition for the rights of reproducing
and distributing phonorecords of copyrighted music,” but
”that the present system is unfair and unnecessarily burdensome
on copyright owners, and that the present statutory rate is too
low.” (3)

To address these concerns, Congress adopted a number of new conditions
and clarifications in section 115 of the Copyright Act of 1976,
including:

• making the license available only after a phonorecord
has been distributed to the public in the United States with
the authority of the copyright owner and only to someone whose
primary intent is to distribute phonorecords to the public
for private use (§ 115(a)(1));

• disallowing the duplication of a sound recording embodying
the nondramatic musical work without the authorization of the
copyright owner of the sound recording (§ 115(a)(1));

• allowing for the rearrangement of a nondramatic musical
work “to the extent necessary to conform it to the style
or manner of the interpretation of the performance involved,” provided
that the rearrangement “does not change the basic melody
or fundamental character of the work” (§ 115(a)(2));

• allowing a licensee to file its notice of intention
with the Copyright Office in the case where the public records
of the Copyright Office do not identify the copyright owner
and include an address (§ 115(b)(1));

• requiring service of the notice of intention on the
copyright owner “before or within thirty days after making,
and before distributing any phonorecords of the work” (§ 115(b)(1));

• requiring payment only on those made (4) and
distributed (5) after the copyright
owner is identified in the registration or other public records
of the Copyright Office (§ 115(c)(1)); (6)

• establishment of an independent rate setting body to
adjust the rates; (7) and

• allowing for termination of the license for failure
to pay monthly royalties if a user fails to make payment within
thirty days of the receipt of a written notice from the copyright
owner advising the user of the default (§ 115(c)(6)).

This revised compulsory license
worked reasonably well for the next two decades, but the use of new
digital technology to deliver music to the public required a second
look at the license to determine whether it continued to meet the needs
of the music industry. During the 1990s, it became apparent that music
services could offer options for the enjoyment of music in digital
formats either by providing the public an opportunity to hear any sound
recording it wanted on-demand or by delivering a digital version of
the work directly to a consumer's computer. In either case, the possibility
existed that the new offerings would reduce and perhaps even eventually
replace the need for mechanical reproductions in the forms heretofore
used to distribute nondramatic musical works and sound recordings
in a physical format, e.g., vinyl records, cassette tapes and most
recently audio compact discs. Moreover, it was clear that digital
transmissions were substantially superior to, and therefore more
desirable than, analog transmissions. In an early study conducted
by the Copyright Office, the Office noted two significant improvements
associated with digital transmissions: a superior sound quality
and a decreased susceptibility to interference from physical structures
such as tall buildings or tunnels. (8)

3. The Digital Performance Right in Sound Recordings Act of 1995

By 1995, Congress recognized that “digital
transmission of sound recordings [was] likely to become a very
important outlet for the performance of recordedmusic.” (9) Moreover,
it realized that “[t]hese new technologies also may lead
to new systems for the electronic distribution of phonorecords
with the authorization of the affected copyright owners.” (10) For
these reasons, Congress made further changes to section 115 to
meet the challenges of providing music in a digital format when
it enacted the Digital Performance Right in Sound Recordings Act
of 1995 ("DPRA"), Pub. L. 104-39, 109 Stat. 336. (11) The
amendments to section 115
clarified the reproduction and distribution rights of copyright
owners of musical works as well as clarifying the role of producers
and distributors of sound recordings, especially with respect to
what the amended section 115 termed “digital phonorecord
deliveries.” Specifically, Congress wanted to reaffirm the mechanical
rights of songwriters and music publishers in the new world of
digital technology.

To accomplish this goal, Congress expanded the
scope of the compulsory license to include the making and distribution
by means of digital transmissions of phonorecords and, in doing
so, adopted a new term of art, the “digital phonorecord delivery” (“DPD”),
to describe the delivery to a consumer of a phonorecord by means
of a digital transmission, which requires the payment of a statutory
royalty under section 115. The precise definition of this new term
reads as follows:

A “digital phonorecord delivery” is each individual
delivery of a phonorecord by digital transmission of a sound
recording which results in a specifically identifiable reproduction
by or for any transmission recipient of a phonorecord of that
sound recording, regardless of whether the digital transmission
is also a public performance of the sound recording or any nondramatic
musical work embodied therein. A digital phonorecord delivery
does not result from a real-time, nonintegrated subscription
transmission of a sound recording where no reproduction of the
sound recording or the musical work embodied therein is made
from the inception of the transmission through to its receipt
by the transmission recipient in order to make the sound recording
audible.

17 U.S.C. § 115(d). What is noteworthy about the definition
is that it includes elements related to the right of public performance
and the rights of reproduction and distribution with respect to
both the musical work and the sound recording. The statutory license,
however, covers only the making and distribution of the phonorecord,
and only with respect to the musical work. The definition merely
acknowledges that the public performance right and the reproduction
and distribution rights may be implicated in the same act of transmission,
and that the public performance does not in and of itself implicate
the reproduction and distribution rights associated with either
the musical work or the sound recording. In fact, Congress included
a provision to clarify that “nothing in this Section annuls
or limits the exclusive right to publicly perform a sound recording
or the musical work embodied therein, including by means of a digital
transmission.” 17 U.S.C. § 115(c)(3)(K).

The DPRA also clarified that the statutory license
for digital phonorecord deliveries permits reproduction and transmission
by means of a digital phonorecord delivery of a musical composition
embodied in a sound recording owned by a third party, provided
that the licensee obtains authorization from the copyright owner
of the sound recording to deliver the DPD. Thus, the license provides
for more than the reproduction and distribution of one's own version
of a performance of a musical composition by means of a DPD. Under
the expanded license, a service providing DPDs can in effect become
a virtual record store if it is able to clear the rights to the
sound recordings. More importantly, the DPRA allows a copyright
owner of a sound recording to license the right to make DPDs of
both the sound recording and the underlying musical work to third
parties if it has obtained the right to make DPDs from the copyright
owner of the musical work. (12)

Apart from the extension of the compulsory license to cover the
making of DPDs, Congress also addressed the common industry practice
of incorporating controlled composition clauses into a songwriter/performer's
recording contract, whereby a recording artist agrees to reduce
the mechanical royalty rate payable when the record company makes
and distributes phonorecords including songs written by the performer.
In general, the DPRA provides that privately negotiated contracts
entered into after June 22, 1995, between a recording company and
a recording artist who is the author of the musical work cannot
include a rate for the making and distribution of the musical work
below that established for the compulsory license. There is one
notable exception to this general rule. A recording artist-author
who effectively is acting as her own music publisher may accept
a royalty rate below the statutory rate if the contract is entered
into after the sound recording has been fixed in a tangible medium
of expression in a form intended for commercial release. 17 U.S.C. § 115(c)(3)(E).

The amended compulsory license also extended to
DPDs the already-existing process for establishing rates for the
mechanical license. Under the statutory structure, rates for the
DPDs can be decided either through voluntary negotiations among
the affected parties or, in the case where these parties are unable
to agree upon a statutory rate, by a Copyright Arbitration Royalty
Panel (“CARP”) - or now by the Copyright
Royalty Judges (“CRJs”).
Pursuant to section 115(c)(3)(D), the CRJs must establish rates
and terms that “distinguish between (i) digital phonorecord
deliveries where the reproduction or distribution of a phonorecord
is incidental to the transmission which constitutes the digital
phonorecord delivery, and (ii) digital phonorecord deliveries in
general.” The difficult
issue, however, is identifying those reproductions that are subject
to compensation under the statutory license.

The amended compulsory license also extended to
DPDs the already-existing process for establishing rates for the
mechanical license. Under the statutory structure, rates for the
DPDs can be decided either through voluntary negotiations among
the affected parties or, in the case where these parties are unable
to agree upon a statutory rate, by a Copyright Arbitration Royalty
Panel (“CARP”) – or now by the Copyright Royalty
Judges (“CRJs”). Pursuant to section 115(c)(3)(D),
the CRJs must establish rates and terms that “distinguish
between (i) digital phonorecord deliveries where the reproduction
or distribution of a phonorecord is incidental to the transmission
which constitutes the digital phonorecord delivery, and (ii) digital
phonorecord deliveries in general.” The difficult issue,
however, is identifying those reproductions that are subject to
compensation under the statutory license.

The Need for Reform

At its inception, the compulsory license facilitated
the availability of music to the listening public. However, the
evolution of technology and business practices has eroded the effectiveness
of this provision. Despite several attempts to amend the compulsory
license and the Copyright Office’s regulations (13) in
order to keep pace with advancements in the music industry and
in technology, the use of the section 115 compulsory license, other
than as a de facto ceiling on privately negotiated rates, has remained
at an almost non-existent level.

There is no debate that section 115 needs to
be reformed to ensure that the United States’ vibrant music industry can continue to flourish in the digital
age. As evident from the numerous proposals for change recently submitted to
the Chairman of the House of Representatives’ Subcommittee on Courts, the
Internet, and Intellectual Property (“House Subcommittee”) by entities
representing all aspects of the music industry, the operative question is not
whether to reform section 115, but how to do so. Prior attempts to tinker with
section 115’s language to include online transactions have been useful
band-aids, but Congress has had to continue to revisit the same issues as technology
and business realities have changed the context. It is now time to modernize
section 115 holistically not only to address immediate needs, but also to establish
a functional licensing structure for the future.

Because section 115 and its predecessor have
rarely been used as functioning compulsory licenses and have served
simply as a ceiling on the royalty rate in privately negotiated
licenses, it has placed artificial limits on the free marketplace.
Until the digital revolution in the mid-1990s, the system worked
well enough. As long as the function of section 115 was simply to set the
rates for licenses between music publishers and record companies
that wished to make and distribute sound recordings and to provide
a rarely-used backup procedure for obtaining licenses, there was
no compelling need to change the system. But with the rise of digital
music services that seek to acquire the right to make vast numbers
of already-recorded phonorecords available to consumers, section
115 is not up to the task of meeting the licensing needs of the
21st Century. A new mechanism is needed to make it possible quickly
and efficiently to clear the necessary exclusive rights for large
numbers of works.

For various reasons that made sense at one time,
the domestic music licensing structure for nondramatic musical
works has evolved as a two-track system, one for licensing public
performance rights and the other for licensing the reproduction
and distribution rights. This worked reasonably well when the two
sets of rights rarely intersected. But the reality of digital transmissions
is that in many situations today it is difficult to determine which rights
are implicated and therefore whom a licensee must pay in order to secure
the necessary rights. Faced with demands for payment from multiple representatives
of the same copyright owner, each purporting to license a different right
that is alleged to be involved in the same transmission, licensees end
up paying twice for the right to make a digital transmission of
a single work. Some have called this “double-dipping.” I
would not characterize it that way; I recognize that separate rights are involved – or
at least alleged to be involved – and that copyright owners employ
separate licensors for each of those rights. I also recognize that in at
least some of these cases, there are reasonable arguments that the ability
to license each of these rights has real value to the licensee. But whether
or not two or more separate rights are truly implicated and deserving of
compensation, it seems inefficient to require a licensee to seek out two
separate licenses from two separate sources in order to compensate the
same copyright owners for the right to engage in a single transmission
of a single work. That is not the case with respect to sound recordings,
where the artificial division of the licensing regimes for performances
and for reproductions and distribution does not exist, and where licensees
can obtain all necessary rights to a work from a single licensor. I have
recommended, and continue to recommend, that the law clarify the scope
of the various rights, or at the very least provide some mechanism so that
copyright owners who merely seek to be paid what they believe they are
owed do not face charges of double-dipping.

The increased transactional costs (e.g., arguably
duplicative demands for royalties and the delays necessitated by
negotiating with multiple licensors) also inhibit the music industry’s ability to combat piracy. Legal music services can
combat piracy only if they can offer what the “pirates” offer. I
believe that the majority of consumers who have engaged in illegal peer-to-peer “file-sharing” of
music would choose to use a legal service if it could offer a comparable product.
Right now, illegitimate services clearly offer something that consumers want:
lots of music at little or no cost. They can do this because they offer people
a means to obtain any music they please without obtaining the appropriate licenses.
However, under the complex licensing scheme engendered by the present section
115, legal music services must engage in numerous negotiations with publishers
and record companies which result in time delays and increased transaction costs.
In cases where they cannot succeed in obtaining all of the rights they need in
order to make a musical composition available, the legal music services simply
do not offer that selection, thereby making them less attractive to the listening
public than the pirates. The recent Supreme Court decision in Metro-Goldwyn-Mayer
Studios v. Grokster (14) affords
legitimate music services an opportunity to make great strides in further
penetrating the market, but it is an opportunity that will necessarily
be squandered if Congress does not modernize the section 115 licensing
regime so that legitimate music services take advantage of the blow the
Court has struck against illegitimate offerings, before other illegal
sources arise. Reforming section 115 to provide a streamlined process
by which legal music services can clear the rights they need to make
music available to consumers will enable these services to compete with,
and I believe effectively combat, piracy.

Interested parties expressed the need for reform
during a hearing on March 11, 2004 before the House Subcommittee.
A number of witnesses testified about the difficulties they have
encountered in licensing the use of nondramatic musical works under
this antiquated statutory scheme. Among other things, complaints
were voiced about the difficulties in locating copyright owners
to obtain licenses to reproduce and distribute nondramatic musical
works; the procedural requirements for obtaining a compulsory license;
the lack of clarity over what activities are covered by the compulsory
license; difficulties in licensing the use of nondramatic musical
works for sound recordings in new configurations; and problems
created by the per-unit penny-rate royalty established by section
115.

Two of the issues highlighted at that hearing – issues that we at the Copyright
Office have been hearing about for several years – involve problems arising
when online music services wish to license activities that involve both reproduction
and public performance, leading to demands for payment to two separate agents
for the same copyright owner (i.e., the “double-dipping” concern);
and the contrast between the relatively efficient licensing process for performance
rights and the unsatisfactory process for licensing reproduction and distribution
rights. While the three performing rights societies – the American Society
of Composers, Authors and Publishers (“ASCAP”), Broadcast Music,
Inc. (“BMI”) and SESAC, Inc. – collectively are able to license
public performances of virtually all nondramatic musical works, a significant
percentage of nondramatic musical works cannot be licensed from the main licensing
agent for the reproduction and distribution rights – the Harry Fox Agency,
Inc. (“HFA”). For this and other reasons, some of which
I will address below, online music services that wish to obtain licenses
to make available as many nondramatic musical works as possible find
it impossible to obtain the necessary reproduction and distribution
rights.

Because of the problems identified at the March
2004 hearing, the House Judiciary Committee (“House Committee”)
asked me last July to bring interested parties together to address
the modernization of section 115. (15) The
House Committee asked that I survey areas of concern, identify
areas of agreement, and identify the positions of various parties
on areas where there was no agreement. I was asked to report on
the results of these efforts in September.

Discussions involving the National Music Publishers’ Association, Inc.
(“NMPA”) and its subsidiary The Harry Fox Agency, Inc. (“HFA”),
the Digital Media Association (“DiMA”) and the Recording Industry
Association of America, Inc. (“RIAA”) began on July 16,
2004, and continued throughout the summer. At the start of these discussions,
there was general agreement within the group that any change to section
115 should be structured along the lines of the section114 license, (16) including the
use of a blanket license and a designated agent to collect and distribute
the royalty fees. The group then focused on several key areas, including
the scope of a statutory license, collection and distribution of the
royalty fees, controlled composition clauses, sublicensing, and rate
setting options. In general, the parties reached no consensus on any
particular issue, stating instead that their position on any particular
issue would depend on how a proposal handled other key concerns.

Nevertheless, the parties discussed a number of
options for the scope of a section 115 blanket license, ranging
from the broadest possible coverage, including traditional product
and musical works in all digital transmissions and new product
offerings, to a slight modification of the current license to extend
coverage only to online subscription services offering “tethered” downloads
and/or on-demand streams. User groups favored the broader approach,
seeing it as a way to streamline the licensing process and move
new product offerings and media formats into the marketplace with
the expectation that they will be a viable option to piracy. NMPA,
on the other hand, favored a modest change in the current law,
noting its fear that even limited change will harm publishers and
traditional business practice. Thus, it supported a blanket license
but only to the extent that such a license be administered by a
single designated agent and not include physical product.

Besides
the scope of a blanket license, other controversial issues involved
the administrative aspects associated with collecting and distributing
the royalty fees, the process for selecting a designated agent,
and the extent to which the designated agent could use the funds
for its own licensing practices or lobbying efforts. All participants
agreed that a single entity should assume the responsibility for collecting
and distributing the royalty fees, but they could not agree on how
that entity should be selected or whether or to what it extent it should
shoulder the costs of creating a new database for fulfilling its responsibility.
To address the later problem, NMPA suggested that the statute provide
a means for the designated agent to recover its start-up costs. It
also expressed concern over a perceived free-rider problem and suggested
that opt-outs not be allowed as a solution to this problem. Participants,
however, were unwilling to endorse any proposal on these issues without
additional knowledge about the scope of the license, e.g., whether
it would be sufficiently broad to generate adequate funds to cover
the set-up costs of the program, or a decision on the availability
of the information in the database to others.

Two other issues hotly debated among the participants
were the abolition of the controlled composition discount and the
right to sublicense. Not surprisingly, NMPA favored nullification
of the controlled composition clause in recording contracts with
respect to any activities covered by blanket licenses, whereas
the record companies, who by virtue of the controlled composition
clauses in recording contracts are able to pay the songwriters
and publishers less than the statutory rate, opposed any such change.
The recording companies contended that the elimination of controlled
composition clauses would seriously diminish their flexibility
in licensing which, in turn, would have a negative effect on their
ability to conduct business and invest in new talent.

Users and copyright owners likewise differed on
the sublicensing question. Publishers sought a restriction on the
right of a recording company to sublicense use of a musical work
covered by a blanket license and stated a preference that services
deal directly with the designated agent or music publishers when
making digital deliveries under a blanket license. Not surprisingly,
the recording companies opposed this position. Their preference
was to retain the option of offering services an opportunity to
sublicense through them rather than have the service seek out and
deal with yet another licensor. They maintained that it would be extremely
difficult to market a new product if they could not provide all licenses
for use of the product.

One other key issue discussed during these talks
concerned the rates and the process to set them. Users wanted a
statutory change to clarify that the rate setting body could establish
a rate based on percentage-of-revenue. They also wanted clarification
as to whether a service must pay for server copies and intermediate
reproductions under the law or whether one type of reproduction
or both were exempt. This last issue was of particular interest
to certain user groups who would potentially have to participate
in more than one ratesetting proceeding to set rates applicable
to a single activity, i.e., webcasting.

Formal discussions concluded in early September
and, on September 17, I reported my observations to Representatives
Sensenbrenner, Conyers, Smith and Berman, noting that these parties
were willing to explore legislation to establish a blanket licensing
scheme in section 115 to facilitate the licensing of copyrighted
nondramatic musical works even though significant differences remained
among the parties regarding the appropriate scope of such a license
and regarding operational and economic issues. (17) My
letter also noted
that the parties were willing to continue discussions among themselves
and with the Copyright Office in an effort to arrive at consensus
legislation. The outgrowth of these discussions were a number of
different proposals on how to reform section 115 submitted to Representative
Smith in recent months by various organizations representing publishers,
songwriters, performing rights societies, record companies, online
music services, and record retailers. In general, those proposals
appear to reflect the same disparity of views that I reported on
last September. The only consensus appears to be that the interested
parties would be amenable to a blanket license with one designated
agent and the filing of only one notice to use any number of works.
In light of the facts that the interested parties agree that section
115 does not adequately meet the current and future needs of the
music industry, that the parties are unable to agree upon a solution,
and that prior amendments to the Copyright Act and the Copyright Office’s regulations have not fully remedied the problems,
the time has now come to revise section 115 holistically. And, as noted above,
the recent decision in MGM v. Grokster provides the music industry with an opportunity
to capitalize on the Court’s unanimous condemnation of illegitimate
services that set out to exploit the market for mass infringement.
It can do so by offering consumers easily available and affordable
access to the music that consumers want. Removing the impediments to
the licensing of legitimate online services is a necessary step in
making that marketplace work.

Proposed Legislative Solutions

Any solution to the crisis in music licensing
must make it easy for licensees to obtain, from a single source
or at least a manageable number of sources, all the necessary rights
for all the musical compositions licensees wish to offer to the
public. Such “one-stop shopping” is essentially available
today with respect to performance rights. (18) However, nothing
approaching “one-stop
shopping” exists with respect to reproduction and distribution rights.
And as noted above, a music service must obtain separate licenses for (1) the
performance and (2) the reproduction and distribution of the same musical works,
even when the performance, reproduction and distribution all take place in the
course of a single transmission. True “one-stop shopping” would
involve (1) all the musical compositions one wishes to license, and
(2) all necessary rights one wishes to license.

As I see it, there are two ways to accomplish
such “one-stop shopping.” First,
a solution along the lines of our discussions last year, transforming the section
115 compulsory license into a section 114-style blanket license with royalty
payments funneled through a single designated agent could simplify the licensing
process. Alternatively, the section 115 compulsory license could be abandoned – at
least with respect to digital phonorecord deliveries – and replaced
with a system of collective licensing similar to systems in place in
many other countries. Each option has its pros and cons, as well as
a host of controversial issues and logistical concerns. Regardless
of whichever option is selected, further discussion with interested
parties will necessarily be required in order to minimize disruption
to the industry. Because our discussions last year centered on a blanket
statutory license, I will first address that alternative.

1. Expansion of the Section 115 Compulsory License

a. A Blanket Compulsory License

Section 114 of the Copyright Act may provide
a useful model for licensing of reproduction and distribution of
nondramatic musical works. Under section 114, an eligible music
service may obtain a license to transmit certain kinds of performances
of all sound recordings by filing a single notice of intent to
use the statutory license with the Copyright Office. Royalty rates
and terms of payments are established by the Copyright Royalty
Judges through the mechanism set forth in Chapter 8 of the Copyright
Act. The royalty payments are made to a designated agent of copyright
owners and performers (currently SoundExchange, which is controlled
equally by record companies and performers), which distributes
the royalties to the copyright owners and performers.

A similar mechanism under section 115 would permit
a digital music service to obtain a license to make digital phonorecord
deliveries of any musical composition (or at least of any musical
composition that has been distributed to the public in the United
States under the authority of the copyright owner; see, 17 U.S.C. § 115(a)(1))
simply by serving or filing a notice of intent to use the statutory
license. Royalty payments would be made to a single entity which
would then redistribute those royalties to the copyright owners,
and the royalty rates and terms of payment would be established
under the Copyright Royalty Judge system.

Last year I tried without
success to guide the interested parties to consensus on such a
proposal, and I have not given up hope that agreement may ultimately
be reached. However, the interested parties thus far have not been
able to resolve their differences, and I suspect that in order
for such a solution to be accomplished, it may be necessary for
Congress to make some important decisions notwithstanding the lack
of consensus among all the affected parties.

My 2004 testimony before the House Subcommittee
addressed such an approach, among others. Interested parties have
also recently submitted to the House Subcommittee various proposals
for further amendment. The two points of agreement among the interested
parties seem to be a desire to have a blanket licensing scheme
with one designated agent and a single notice procedure regardless
of the number of musical works to be utilized pursuant to the statutory
license. I agree with the consensus on these two fundamental points.

One of the main points of contention, however,
is the envisioned scope of the compulsory license. As explained
in my recounting of last summer’s multiparty
discussions, the music publishers in general seem to favor a narrow
expansion to address only the most critical issues (online subscription
services offering limited downloads and on-demand streams), while
the record companies and user groups seem to favor a more holistic
approach to encompass all issues such as audiovisual works, server
and other intermediate copies, ringtones and promotional uses.
Although I am not yet prepared to take a position on all of these
specific issues, I do in general favor an approach that will provide
a workable solution not just for immediate concerns, but for the
foreseeable future. I do, therefore, believe that at a minimum
the compulsory license should be clarified to expressly include
within its scope all intermediate reproductions of a nondramatic
musical work made within the course of any digital phonorecord
delivery, including buffer, cache and server copies. (20)

Similarly, consideration should be given to amending
the section 115 license to provide that reproductions of nondramatic
musical works made in the course of a licensed public performance
are either exempt from liability or subject to the statutory license.
When a webcaster transmits a public performance of a sound recording
of a musical composition, the webcaster must obtain a license from
the copyright owner for the public performance of the musical work,
typically obtained from a performing rights organization such as
ASCAP, BMI or SESAC. At the same time, webcasters find themselves
subject to demands from music publishers or their representatives
for separate compensation for the reproductions of the musical
work that are made in order to enable the transmission of the performance.
I have already expressed the view that there should be no liability
for the making of buffer copies in the course of streaming a licensed
public performance of a musical work. (21) On the
other hand, RIAA and the Harry Fox Agency have reached an agreement
that buffer copies and server copies made for purposes of or in
the course of the streaming of performances are included within
the scope of the section 115 compulsory license. But perhaps more
important than the decision whether to provide an exemption for
such copies or to include them within the section 115 license is
the need to clarify the status of such copies one way or another.
Any reform of section 115 should definitively resolve that issue.

Another issue to consider is the administration
of an expanded section 115 license. It is not clear to me whether
all the affected parties subscribe to the notion that a blanket
section 115 license should be available to any qualified service
that files or serves a notice of intent to use that license, or
whether a service wishing to use the license must somehow obtain
the license from the copyright owner or its representative. Within
a statutory licensing scheme, I see no reason why prospective licensees
should have to do anything to obtain the license other than serve
notice of their intent to use the license and comply with all the
requirements of that license.

In any event, how to set up the entity that would
collect the royalties and disburse them to copyright owners is
a key issue. One model is the section 114 model, in which a new
entity representing and controlled by copyright owners would be
created to serve this function. Existing entities (e.g., The Harry
Fox Agency or one of the performing rights societies) might also
be able to play this role. Another, more established model is found
in sections 111 and 119 of the Copyright Act and in the Audio Home
Recording Act: (22) royalties are
paid to the Copyright Office, which disburses them to eligible
copyright owners. Distributions are made either when all eligible
copyright owners agree on the division of royalties or, failing
that, in a distribution proceeding conducted by the Copyright Royalty
Judges. This is a function that the Copyright Office could easily
perform.

b. Extending Section 115 to Include Certain Performances

While enacting a section 114-style license for
the reproduction and distribution of phonorecords would resolve
one of the two key issues – i.e., the desirability
of giving licensees a single source from which to obtain such licenses for all
musical works – it would do nothing to address the problems created
by the competing claims of performing rights societies and The Harry
Fox Agency (and/or music publishers) that online transmissions of music
require separate licenses for the performance right and for the reproduction
and distribution rights. As I have already suggested, although it is
easy to see how this practice serves the purposes of the two groups
of licensing agents, it is difficult to understand how it serves the
legitimate interests of copyright owners.

To the extent that a particular
form of digital transmission involves both the performance right and
the reproduction and distribution rights, the copyright owner should
be entitled to reap the actual value of both sets of rights. As I have
already indicated, there will be occasions where one of the rights
is technically implicated, but where there is no legitimate reason
to require that compensation be paid for the exercise of that right.
An online music service that engages in streaming under a license of
the performance right should not be required to pay as well for the
right to make the buffer and cache copies that are incidental to the
performance that is being streamed. An online service that offers downloads
under a license of the reproduction and distribution rights should
not also be required to pay for what may also technically constitute
a public performance even though the recipient of the download does
not contemporaneously cause the downloaded work to be performed.

In those cases, the license of the predominant
right should automatically be accompanied by, in effect, a royalty-free
license of the incidental right. But even when both rights are
legitimately involved and the licensee is simultaneously obtaining
economic value from both the performance and reproduction of a
musical work by means of the same transmission, there is no justification
for requiring the licensee to obtain two separate licenses from
two different middlemen acting on behalf of the same copyright
owner. The licensee should be able to obtain a single license for
all the necessary rights, and to pay the full value of the license
in a single payment to a single entity, which will then see to
it that the copyright owner receives the compensation to which
he or she is due.

In the context of an expanded section 115 statutory
license, it makes most sense to provide that for any digital transmission
of music in which not only the reproduction and distribution rights,
but also the performance right are involved, the section 115 statutory
license will cover (and obtain appropriate compensation to the
copyright owner for) all the necessary rights. It should be left
to the collecting agent – whether that be an entity established by the copyright owners or
whether it be the Copyright Office acting in accordance with rate-setting and
distribution orders of the Copyright Royalty Judges – to see
to it that the royalties reach the copyright owners to whom they are
due.

Another approach – but a more difficult one to administer in light of constantly
changing technology – would be to determine by statute (or by administrative
regulation) for each kind of digital audio transmission whether the transmission
should be considered a performance or a reproduction, but never to characterize
any particular kind of transmission as requiring compensation for both types
of rights. But in addition to the administrative difficulties in making such
determinations and keeping them up to date, such a resolution would overlook
the likelihood that there will be occasions when both types of rights are implicated
and where the copyright owner deserves to be compensated for the exercise of
both types of rights. For that reason, I believe it makes more sense to give
the copyright owner the full value of the rights that are exercised, but to do
so in a single payment that eliminates at least one of the middlemen. Again,
the key concern should be with compensating the copyright owner, not with ensuring
the continued viability of any particular intermediary’s business
plan.

2. Repeal of the Section 115 Compulsory License

a. Collective Licensing

Another option to consider is eliminating the
section 115 compulsory license and perhaps replacing it with a
collective licensing structure. When I met several weeks ago with
the Chairman of the House Subcommittee to discuss the various proposals
made by interested parties, I suggested that such an approach might
be preferable. The Chairman requested that I explore this concept
further by preparing initial model legislative language. He then
requested that I testify as to the benefits of this concept, which
I did on June 21. (23)

This collective licensing structure does have
a certain amount of appeal because a fundamental principle of copyright
law is that the author should have the exclusive right to exploit
the market for his work, except where doing so would conflict with
the public interest. The Copyright Office has long taken the position
that statutory licenses should be enacted only in exceptional cases,
when the marketplace is incapable of working. One could argue that
it is difficult to say that the marketplace is incapable of working
with respect to reproduction and distribution of nondramatic musical
works when the marketplace has never been given a chance to succeed.
The moment the copyright owner’s right to control mechanical
reproductions of a nondramatic musical work in the form of phonorecords
was created, it was accompanied by the compulsory license.

Our compulsory license in the United States is
also an anomaly. Virtually all other countries that at one time
provided for this compulsory license have eliminated it in favor
of private negotiations and collective licensing administration.
Many countries permit these organizations to license both the public
performance right and the reproduction and distribution rights
for a musical composition, thereby creating “one-stop shopping” for
music licensees and streamlined royalty processing for copyright
owners. (24)

The United States also has collective licensing
organizations, such as ASCAP, BMI and SESAC, which appear to function
quite successfully. These performing rights organizations license
the public performance of musical works – for
which there is no statutory license – providing users with a
means to obtain and pay for the necessary rights without difficulty.
It seems reasonable to ask whether a similar model would work for licensing
of the rights of reproduction and distribution.

The discussion draft that I presented to the House
Subcommittee attempted to strike the appropriate balance between
the rights of copyright owners and the needs of the users in a
digital world. Its overarching purpose was to remove the barriers
which inhibit the music industry’s ability to clear rights
in order to open the licensing structure to free market competition.

The discussion draft set forth rights and obligations
for newly-defined music rights organizations (“MRO”). An MRO would be authorized, and required
with respect to digital audio transmissions which the Copyright Office has been
told present the greatest need for licensing reform, to license the reproduction
and distribution rights of any nondramatic musical work for which it was also
authorized to license the public performance right. In essence, this would mean
that MROs would be authorized to license downloads and other reproductions (e.g.,
server, cache and buffer copies) made in the course of digital audio transmissions,
even when there is no public performance involved or where the proportion of
the public performance right implicated in relation to the reproduction or distribution
rights is questionable. This should lead to “one-stop shopping” for
any online music service seeking to license rights to a work. (25) This structure
would create an efficient mechanism for copyright owners to license
and for potential licensees to obtain all of the necessary rights to
make nondramatic musical works available to the listening public, particularly
in the context of the Internet and other digital transmission media.
It would also leave evolving business terms to the flexibility of marketplace
negotiations. The discussion draft continued to recognize the rights
of copyright owners, who would appropriately retain the right to license
their works themselves whether or not they chose to engage an MRO.
It also would provide incentives for effective notice of an MRO’s
repertory of works available for licensing.

Substituting the MRO structure for the section
115 compulsory license would address the two themes that I have
already identified as central to the current crisis: the conflicting
demands made by copyright owners’ agents for the licensing
of performance rights and by their agents for the licensing of reproduction
and distribution rights, and the contrast between the ability of
performing rights societies collectively to license performance
rights for virtually all nondramatic musical works and the inability
of any organization or combination of organizations to do the same
with respect to reproduction and distribution rights.

The model
legislation has generated a sizable response. The majority of the
feedback has praised its goals, namely to increase efficiency and
promote the free market, but many interested parties have expressed
concern as to its actual implementation.

One concern that has been raised is the potential
proliferation of an unmanageable number of MROs. Although I recognize
that this would theoretically be possible, I do not believe that
it would be likely. The current performing rights society market
has been open to any number of entities for the better part of
a century, yet only three actually exist. Similarly, only one major
mechanical rights licensing entity exists even though nothing in
the law prohibits more. I assume that the same market forces that
prompted the formation of these existing collective organizations
and inhibited more from arising – namely administrative efficiency, substantial
start-up costs and the songwriters’ and publishers’ recognition that
they have more bargaining power as a unified group – would likely discourage
excessive fractionalization of the MRO marketplace. Meanwhile, even if a few
more MROs were to exist than the current number of collective entities, I consider
it unlikely that this would be an unmanageable number and it would still provide “one-stop
shopping” for any user needing to clear all of the rights to
a particular musical composition. Additional MROs might even provide
a competitive environment in favor of the individual songwriter in
choosing which intermediary would be best in administering the rights
in her musical works. However, the responses from the performing rights
societies and others have certainly raised a genuine prospect that
there might be a multiplicity of MROs and that some or many music publishers
might withdraw from the existing performing rights societies under
the system described in the discussion draft. It would be prudent to
investigate this further before deciding whether such a course of action
would be desirable.

Another concern related to antitrust issues is
whether the existing antitrust decrees governing ASCAP and BMI might
be expanded to take into account the new functions of ASCAP and BMI
as music rights organizations and/or to apply to other MROs. I have
taken no position on whether the existing consent decrees should be
extended, for example, to subject the royalty rates offered by an MRO
for a reproduction and distribution license to review by a rate court.
I recognize that antitrust concerns are integral to this or any other
legislative concept, and have begun consulting with the Antitrust Division
of the Department of Justice.

Regardless of whether formal consent decrees would
apply to MROs, many parties have expressed a desire for the MROs’ rate
to be subject to some sort of oversight, be it by arbitration,
a rate court, the Copyright Royalty Board or otherwise. I think
this provision definitely warrants further consideration, although
I note that greater Government-dictated oversight diminishes the
ability of the free market to function. On the other hand, I recognize
that the more market power that an MRO would have, the greater
would be the justification for supervision by a rate court or other
governmental entity. And it is my understanding that collective
administration organizations abroad are usually subject to some
form of government oversight.

I have also heard criticism expressing concern
that the MRO proposal would create uncertainty. Obviously, it would
be necessary to work with all interested parties to minimize the
negative ramifications, while realizing that any change would necessarily
have some negative consequences for some party or parties. For
example, I have heard the argument that without the statutory license
in place, more popular songwriters would receive greater payments
than less popular ones. While this could well be true, it is also
the very essence of the free market. The more desired an item is,
the higher price it can command. I have also heard the argument
that some licensing agents could lose market share if large copyright
owners chose to license their works directly, an option which I
point out happens to be currently available as well.

The bottom line is that if the section 115 license
were to be eliminated, some current music industry participants
may have to adjust their business practices to maintain their current
levels of profitability without the artificial rate ceiling afforded
by the statutory license. Not meaning to minimize this practical
reality, I wish to emphasize that the overriding goal of any licensing
scheme should be to compensate copyright owners properly and provide
an efficient and effective means by which licensees can obtain
rights to make nondramatic musical works available to the listening
public. Ancillary support organizations are important to the process,
and in any new licensing regime they will necessarily continue
to serve their roles, albeit perhaps with modifications induced
by the increased competition present in a free market. As always,
my focus is primarily on the author. The author should be fairly
compensated for all non-privileged uses of his work. Intermediaries
who assist the author in licensing the use of the work serve a
useful function. But in determining public policy and legislative
change, it is the author – and not the middlemen – whose
interests should be protected.

I recognize that the licensing scheme in my discussion
draft was a radical departure from the current structure. However,
given the problems that seem to inevitably arise every few years
with the section 115 compulsory license and the interested parties’ apparent inability to reach consensus on the majority of issues
regarding how best to further revise section 115 to meet the industry’s
needs, I believe that such an approach has considerable merit. In any
event, at the very least this proposal and the feedback we have received
will assist in reaching a clearer understanding of how best to modify
the system that is already in place.

I also recognize that the discussion draft did
not address some of the issues raised in the proposals that music
industry representatives recently submitted to the House Subcommittee.
Some of those issues relate to ringtunes, promotional uses, multi-format
discs, percentage royalty rates, lyric displays, licensing of music
for audiovisual works, locked content and accounting logistics.
I consider these to be business or economic issues which are best
resolved in the marketplace. (26) Eliminatingthe
section 115 compulsory license creates this marketplace, and the
case can be made that there is no need for Government to legislate
what the parties can negotiate themselves.

b. Simple Repeal of the Compulsory License

Should the concept of free marketplace negotiations
for reproduction and distribution rights for nondramatic musical
works appear to be desirable, then a variation on this legislative
concept might also be worthwhile to explore. One might ask whether
it would further benefit the industry as a whole simply to repeal,
yet not replace, the section 115 compulsory license. Then reproduction
and distribution rights would truly be left to marketplace negotiations.
A sunset period of several years would likely be prudent to permit
the industry to develop a smooth transition. My prediction would
be that music publishers would voluntarily coalesce into music
rights organizations, or perhaps would create a single online clearinghouse
(or a handful of such clearinghouses) which would permit one-stop
shopping while nevertheless permitting each publisher to set its
own rates. It might be wise to couple repeal of section 115 with
incentives designed to promote one of these alternatives that would
result in one-stop shopping or something close to it.

In principle, I favor this approach. After all,
the Constitution speaks of authors’ “exclusive
rights to their Writings,” and in general authors should be free to determine
whether, under what conditions and at what price they will license the use of
their works. But for the past few years, the music industry has been in a state
of crisis, as unauthorized mass infringement has become all too easy and, unfortunately,
all too tempting to engage in. Consumers, used to being able to obtain any musical
work they want at little or no cost, will demand no less from the legitimate
marketplace. The Supreme Court’s decision two weeks ago may offer
some breathing room to the music industry, but that breathing room
should not be squandered. Rather, it offers at best a limited opportunity
to reform the system of music licensing in a way that will meet the
demands of a public that knows how to get what it wants one way or
another. A laissez-faire approach that gives each musical copyright
owner the complete freedom to decide whether and how to license his
or her works may be too risky in the current environment.

3. Other Issues

Other questions and proposed remedies have been
raised that address more technical or business-related issues,
but these are matters more appropriately addressed once an overall
approach has been selected. They include whether and under what
terms to permit controlled composition clauses, whether percentage
versus penny rates should apply, and notice and accounting procedures.
Some interested parties’ proposals
have also raised tangential issues such as defining the term interactive in Section
114 or creating a public performance right for analog transmission of sound recordings.
While such issues may well deserve attention, I understand that today’s
hearing is to evaluate the defects of section 115, not all topics relating
to music licensing in general.

Conclusion

I commend you, Mr. Chairman, for convening this
hearing to discuss the problems associated with the use of the
section 115 license in a digital environment. I look forward to
working with you, members of the Subcommittee, and the industries
represented at this table to find effective and efficient solutions
to make improvements in the licensing of musical works that will
better enable consumers to enjoy the music that our songwriters
and composers create and that will compensate our songwriters and
composers in a way that continues to provide them with ample incentives
to continue to create and make available the music that we all
enjoy.

2. The music industry construed the reference
in Section 1(e) of the 1909 Act as referring only to a nondramatic
musical work as opposed to music contained in dramatico-musical
works. See, Melville B. Nimmer, Nimmer on Copyright § 16.4
(1976). Congress expressly incorporated this interpretation into
the law with the adoption of the 1976 Act. 17 U.S.C. § 115(a)(1).
It is important to keep in mind that a “musical work” refers
to a composition (e.g., the specification of notes and lyrics,
such as written on a page of sheet music) while a “sound
recording” refers to the fixation of a particular performance of
a composition such as on an audio compact disc. However, to reproduce
a recorded song, one needs to obtain licenses both as to the musical
work as well as to the sound recording.

4. Congress intended the term “made” “to
be broader than 'manufactured' and to include within its scope
every possible manufacturing or other process capable of reproducing
a sound recording in phonorecords.” H. Rep. No. 1476, at 110 (1976).
Although originally enacted to address the reproduction of musical
compositions on perforated player piano rolls, the compulsory license
has for most of the past century been used primarily for the making
and distribution of phonorecords and, more recently, for the digital
delivery of music online.

5. For purposes of section 115, “the concept
of 'distribution' comprises any act by which the person exercising
the compulsory license voluntarily relinquishes possession of a
phonorecord (considered as a fungible unit), regardless of whether
the distribution is to the public, passes title, constitutes a
gift, or is sold, rented, leased, or loaned, unless it is actually
returned and the transaction cancelled.” Id.

6. This provision replaced the earlier requirement
in the 1909 law that a copyright owner must file a notice of use
with the Copyright Office in order to be eligible to receive royalties
generated under the compulsory license.

7. In 1993, Congress passed the Copyright
Royalty Tribunal Reform Act of 1993, Pub. L. 103-198, 107 Stat.
2304, which eliminated the Copyright Royalty Tribunal and replaced
it with a system of ad hoc Copyright Arbitration Royalty
Panels (CARPs) administered by the Librarian of Congress. Late
last year, Congress passed the Copyright Royalty and Distribution
Reform Act of 2004, Pub. L. 108-419, 118 Stat. 2341,which replaced
the CARP system with three full-time Copyright Royalty Judges appointed
by the Librarian of Congress.

17. Letter from Register of Copyrights Marybeth
Peters to Representatives E. James Sensenbrenner, Jr., Lamar Smith,
John Conyers and Howard Berman of September 17, 2004.

18. In actuality, the performing rights societies
- ASCAP, BMI and SESAC - offer “three-stop shopping”: A music
service that wishes to license the rights to all nondramatic musical
compositions must obtain a license from each of the three societies.
But that has not proved to be a significant burden with respect
to the licensing of performance rights.

19. See, Statement of Marybeth Peters,
the Register of Copyrights, before the Subcommittee on Courts,
the Internet, and Intellectual Property of the House Committee
on the Judiciary, Section 115 Compulsory License, available
at http://www.copyright.gov/docs/regstat031104.html.

20. Technically, these are phonorecords rather
than copies, see 17 U.S.C. § 101 (definitions of
“copies” and “phonorecords”),
but terms such as “buffer copy” and “server copy” have entered common parlance.

21. See, U.S. Copyright Office,
DMCA Section 104 Report 142-146 (2001), available at http://www.copyright.gov/reports/studies/dmca/sec-104-report-vol-1.pdf.
Statement of Marybeth Peters, The Register of Copyrights, before
the Subcommittee on Courts, the Internet, and Intellectual Property
of the House Committee on the Judiciary, Oversight Hearing
on the Digital Millennium Copyright Act Section 104 Report, available
at http://www.copyright.gov/docs/regstat121201.html.

23. For a copy of this legislative language,
a section-by-section analysis and other exploratory information,
please see my written statement as submitted to the House Subcommittee,
available at http://www.copyright.gov/docs/regstat062105.html.

24. See, David Sinacore-Guinn, Collective
Administration of Copyrights and Neighboring Rights: International
Practices, Procedures, and Organizations § 17.9.3 (1993) (citing
45 countries which permit collective licensing organizations to
license both rights, including Argentina, Brazil, Chile, France,
Germany, Greece, Hong Kong, India, Israel, Italy, Japan, Mexico,
South Korea and Spain). The European Union has recently recognized
that there may be value in one-stop shopping in the form of EU-wide
licensing of online music. See, Huw Jones, EU Weighs
Plan to Help Online Music Marketsource, Reuters (June 30,
2005), available at http://today.reuters.co.uk/news/newsArticle.aspx?type=internetNews&storyID=005-6-30T04025Z
01_MOR038309_RTRIDST_0_OUKIN-MEDIA-EU-COPYRIGHT.XML, visited July
8, 2005.

25. It would be “one-stop” shopping
with respect to all of the necessary rights for all works in an
MRO's repertoire. Of course, it would not be “one-stop” for
a licensee wishing to obtain rights to all nondramatic musical
works. That licensee would need to obtain a blanket license from
each of the MROs. But that simply reflects the current state of
affairs with respect to public performance rights, and that state
of affairs appears to be satisfactory.